A 13% gain in the six days before September 12 brought the cryptocurrency’s total market capitalization close to $1.1 trillion, but it wasn’t enough to break the downtrend. As a result, the overall trend over the past 55 days has been bearish, with the last test of support on September 7 reaching a total market cap of $950 billion.
The improvement in traditional markets accompanied the recent 13% rally of the crypto market. The tech-heavy Nasdaq Composite is up 6.2% since Sept. 6, and WTI crude oil prices are up 7.8% since Sept. 7. This data reinforces the high correlation against traditional assets and emphasizes the importance of closely monitoring macroeconomic conditions.
The correlation metric ranges from a negative 1, indicating that the selected markets move in opposite directions, to a positive 1, which reflects a perfectly symmetrical movement. The disparity or lack of relationship between the two assets would be represented by 0.
As noted above, the Nasdaq Composite and Bitcoin’s 50-day correlation currently stands at 0.74, which has been the norm throughout 2022.
The decision of the FED on September 21 will improve the mood
Stock market investors are anxiously awaiting the US Federal Reserve meeting on September 21, where the central bank is expected to raise interest rates again. While the market consensus is for a third consecutive 0.75 percentage point rate hike, investors are looking for signs that economic tightening is fading.
The US Consumer Price Index report, a relevant inflation metric, is expected on September 13, and on September 15, investors’ attention will be glued to US retail sales and industrial production data.
For now, regulatory sentiment remains largely negative, especially after US Securities and Exchange Commission (SEC) Executive Director Gurbir Grewal said the financial regulator would continue investigate and take enforcement action against crypto firms.
Altcoins rallied, but professional traders were resistant to taking longs
Below are the winners and losers from last week’s total crypto market cap gain of 8.3% to $1.08 trillion. Bitcoin (BTC) stood out with a gain of 12.5%, leading to a dominance rate of 41.3%, the highest since August 9.
Terra (LUNA) jumped 107.7% after Terra. approved a September 9th proposal for an additional airdrop of more than 19 million LUNA tokens by October 4th.
RavenCoin (RVN) gained 65.8% after the network’s hash rate reached 5.7 TH per second, the highest level since January 2022.
Even with these gains, a single week of positive performance is not enough to interpret the position of professional traders. Whale watchers and market tickers should analyze the derivatives markets. Perpetual contracts, also known as inverse swaps, have an embedded rate typically charged every eight hours. Exchanges use this fee to avoid exchange rate risk imbalances.
A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite occurs when shorts (sellers) require additional leverage, causing the funding rate to go negative.
Permanent contracts reflected neutral sentiment as accumulated funding rates were relatively stable in most cases. The only exception was Ether (ETH) and Ether Classic (ETC), although the 0.30% weekly cost of holding a short (bearish) position should not be considered relevant. Additionally, these cases are likely related to the Ethereum Merge, the transition to a proof-of-stake network expected on September 15.
The chances of a downtrend are still high
The positive 8.3% weekly performance cannot be considered a trend reversal, as this move was probably associated with a recovery in traditional markets. Additionally, one would assume that investors are likely to appreciate the risk of further regulatory fallout following Gary Gensler’s remarks.
Uncertainty remains about potential macroeconomic triggers and traders are unlikely to add risk ahead of major events such as the FOMC’s interest rate decision. Because of this, the bears have reason to believe that the prevailing longer-term bearish pattern will resume in the coming weeks.
The disinterest of professional traders in leveraged longs is evident from the neutral funding rate futures and this is another sign of negative sentiment from investors. If the total cryptocurrency market capitalization tests the bearish support level of $940 million, traders should expect a 12.5% drop in price from the current $1.08 billion level.
The views and opinions expressed here are solely the opinions author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step involves risk. You should do your own research when deciding.